What is ULIP?

Reality: People with the question ‘What is ULIP?’ have been led to believe that a ULIP plan is an expensive investment product due to charges like those towards premium allocation, fund management among other. The reality is that ULIPs have changed significantly.. People may not be aware but the IRDAI in 2010 has brought down annual charges to 3% for the first 10 years of the holding period and 2.25% for more than 10 years of holding. This reduction excludes mortality and morbidity charges. The fund management charges (FMC) have also been capped at 1.35%. Capping of charges has been done to provide a reasonable value proposition to the customers. The charges were fixed at this rate because competing products such as mutual funds were charging an average cost similar to this. This has considerably brought down the cost of owing ULIPs and has made them affordable.

Reality: Another myth is that a ULIP plan is riskier investment product as it only invests in the equity market. This is absolutely not true. For anyone wanting to know what is ULIP offering, a ULIP plan gives the option of investing in debt, equity or a mixture of debt and equity as per the wishes of the policyholder. Depending on the type of risk one can take, different funds can be selected with different objectives. Aggressive funds which primarily invest in equity are apt for high risk-takers while conservative funds which are debt-oriented are more suited for risk-averse people. There is also the option of a balanced fund which is a mix of equity and debt. A ULIP plan also gives the option of switching between funds as per change in personal conditions, change in risk appetite, etc.

Reality: ULIPs do allow investment of surplus funds. Surplus funds can be added as per availability to a ULIP with a lower premium. Top-up premiums can be paid any time during the tenure of the existing ULIP policy and they enjoy the same tax benefits as regular premiums.

Reality: People with the query ‘What is ULIP?’ have been confused and often misled into believing that ULIPs cannot be discontinued at all. Once can discontinue a ULIP plan after minimum 5 years of lock-in period without payment of any surrender charges.

Reality: There is also this confusion in the minds of consumers that the life cover under a ULIP decreases with market volatility. However, this is not true. The life cover remains unaffected with the rise and fall of stock markets. In case the insured dies during the policy term, ULIPs pay either the complete life cover or the fund value whichever is higher.

Reality: This again is completely untrue. A ULIP plan offers policyholders the twin benefits of insurance and investment. In addition, a ULIP plan has many optional rider options like other insurance products. Common riders are Accidental Death Benefit, Family Income Benefit, Hospital Cash Benefit, Waiver of Premium, etc. Additional cash requirements in case of emergencies can be taken care of through partial withdrawals. There may be some restrictions on clubbing two optional riders together but investors can always get the best ULIP plan with a suitable ULIP NAV for themselves.

Reality: This again is a false notion prevalent among many people. The fact is that if money is invested judiciously in different funds with varying degree of exposure to equity and debt markets, investors stand a chance to lock in good returns upon maturity. The choice for funds, timely switching, redirection of funds or premiums, all ensure that one’s fund growth is healthy. Another thing to understand is that ULIPs are long term investment vehicles. With disciplined investing, they give attractive returns over the long term in addition to a life cover. All policyholders have to do is to keep a track of the ULIP NAV to get a policy that suits their needs. They can also opt for a different fund allocation that gives better returns after checking the ULIP NAV.

Insurance companies offer an array of funds out of which one can choose, based on their investment objectives, time horizon, and risk profile. Each fund has a different element of risk and consequently offers different returns.

Common types of funds available with their risk characteristics are given below:

Cash Funds: They are sometimes referred to as Money Market Funds. Cash funds come under the low-risk category and invest in cash, bank deposits and money market instruments that have the lower risk.

Debt Funds: Income, Fixed Interest and Bond Funds: These figure in the medium risk category and invest in debt instruments like government securities, corporate bonds and other low-risk fixed income instruments. While the returns are lower in comparison to equity, the risk is low as well. The returns from these funds are slightly higher than cash funds. 

Balanced or Hybrid Funds: They combine equity investment with fixed interest instruments and are of medium risk in nature. These hybrid funds give adequate exposure to stock markets as well as debt instruments. The risk inherent in equity is counterbalanced by the safer investments in debt.

Equity Funds: These ULIP funds fall in the medium to the high-risk category as they primarily invest in company stocks with the objective of capital appreciation. Since these funds invest in the stock markets, the fund performance is in line with the highs and lows due to volatility in the stock market.

ULIP NAV, in everyday terminology, refers to the Net Asset Value (NAV) of each unit of the ULIP fund on a particular day. The insurance companies generally display the ULIP NAV of each fund on their websites under the relevant section.

Though ULIP NAV is now more understood on a per unit basis, in the strict financial sense, it refers to the net value of the assets of the firm. In other words, ULIP NAV equals the assets minus liabilities. The assets taken to calculate the ULIP NAV include the market value of investments held by the insurance company’s fund, the value of the fund’s current assets and any accrued income. The liabilities taken to calculate the ULIP NAV include fund management charges, current liabilities, provisions and service tax. 

To arrive at the ULIP NAV of a single unit, the ULIP NAV of the whole fund is divided by the number of units in the fund existing on the valuation date. The resulting figure is the ULIP NAV per unit, which is what common terminology refers to when speaking of ULIP NAV.

As per a directive of IRDA in 2013, the valuation of equity shares is now calculated on the closing price of the company’s shares on the National Stock Exchange (NSE), which is also the primary exchange. In case a security is not listed or traded on the NSE, the closing price of the Bombay Stock Exchange (BSE) or the secondary exchange has to be used for the purpose of computation of ULIP NAV.

Like mutual funds, ULIP policyholders are also allotted units. Each unit has a net asset value (NAV) that is determined and declared every day. It is the value on which net rate of returns on ULIPs are determined. The ULIP NAV varies from one ULIP to another as it is based on prevailing market conditions and the performance of the fund.

People with Varying Risk Appetites

Most insurance companies offering ULIPs provide a range of debt, equity and a mixture of debt and equity funds to choose from to cater to all kinds of consumers. Equity funds offer higher returns and are appropriate for aggressive investors willing to take high risks. On the other hand, debt funds are less risky and consequently offer lower returns. Therefore, a ULIP plan serves all types of investors – from the risk-averse investor to an investor having a strong appetite for risk. Keeping a track of the historical ULIP NAV will help the person looking for the best ULIP plan to understand which one he or she should invest in. 

People looking for an avenue for investment along with insurance will find ULIPs a good choice as one stands to gain from superior market returns in addition to having an insurance cover.

People with Medium to Long Term Investment Horizon

Unit Linked Insurance Plans are suitable for people who wish to invest in long-term investments. To get the best returns from ULIPs, one should invest in medium to lifelong investment horizons. In any case, they come with a compulsory lock-in period of 5 years. If one wants to create a corpus for his or her child’s higher education requirements or the child’s marriage expenditure, a unit linked insurance plan is a good choice due to its long-term outlook. Individuals can track the simple details such as the ULIP NAV, the total value of the fund, the equity-debt allocation to find the best ULIP plan for themselves.

Hands-On Investors

ULIP plans are most suited for individuals who like to track their investments closely. Since each insurance company provides the ULIP NAV for each of its unit linked insurance plans on its site, people can easily determine which the best ULIP plan for their needs is. Moreover, with the flexibility of switching between debt, equity and balanced funds with varying risk-return profiles, hands-on informed investors will find ULIPs the best investment plan as they can keep close tabs on their investment and make changes based on how the market is performing. The fact that these ULIP plans offer insurance cover also is an added bonus.

Investors across Different Life Stages

• ULIP plans are ideal for all kinds of investors at different stages in life as there are ULIP plans available depending on individual requirements and situations.

• The need for protection is low for single people who have just started their careers. Their need for wealth creation and accumulation however is high; therefore, they can meet such needs by choosing a ULIP plan with low death benefit and allocating in equity-focused investment funds. Keeping track of the ULIP NAV will further help them maximise returns by choosing the best ULIP plans for themselves.

• Someone who is married but has no children has medium protection needs but has a high need for wealth creation. Such individuals can opt for a ULIP plan with higher death benefit and choose a growth or balanced investment fund for wealth creation.

• For married individuals who are also parents, the need for protection is high, as is the need for asset creation to save for children. They can achieve this by choosing a ULIP plan with increased death benefit and choose riders for enhanced protection in addition to going for balanced funds for asset creation. Checking the ULIP NAV on a regular basis will help them optimise their fund allocation through the years.

• People who are well settled in their jobs and have school going children have high protection as well as wealth creation needs. Their need for liquidity is also high to meet their child’s requirements. It is most advisable to go for a ULIP plan which allows partial withdrawals to meet such liquidity requirements.

• The need for protection is in the medium range for middle-aged individuals whose children are ready to pursue higher education or plan to set up a business or plan to get married. They require lump sum money to fulfil such responsibilities and this can be achieved by ULIP plans allowing partial withdrawals.

• People who are nearing retirement, whose children are independent, have low protection needs. They require safe accumulation of funds for post-retirement needs. Such individuals can opt for debt-oriented funds and lower the death benefit of their ULIP plan. These people should opt for the best ULIP plan for themselves that will give them regular returns without them having to worry about the ULIP NAV.

The best ULIP plan offers several advantages. Some of the important ones are explained in detail below:

• Market Linked Returns: ULIP plans present an opportunity to earn market linked returns. A part of the premium paid in a ULIP plan in invested in funds which invest in different market instruments including debt and equity in varying proportions. The policyholder stands a chance to earn returns based on the market. Investors can use the data such as the ULIP NAV to keep a tab on returns and ensure they stay invested in the best ULIP plans.

• Investment and Life Protection:Investing in ULIPs helps to inculcate the habit of saving and investing, both of which are essential for building long term wealth. ULIPs offer dual benefit of a life insurance cover as well as savings at market-linked returns. With the feeling of peace of having life protection, one can invest in a range of market funds to earn a high rate of return.

• Flexibility: ULIPs give a lot of flexibility to the policyholder. One has the option to switch between different funds to match one’s changing needs. There is also a facility to partially withdraw from the fund and this is subject to special charges and conditions. One can even invest additional sums of money as top-up over regular premiums. The ULIP NAV is a smart tool to track the investments and make sure the investors stay invested in the best ULIP plan.

   

• Tax Deductions: ULIPs allow tax is invested in a ULIP is deductible from one’s, reducing the money owed to the government by way of income tax.

• Funds for Crucial Milestones in Life: Significant amount of funds are required at different stages in life. They may be required for one’s business, building a house, child’s marriage, etc. The facility to partially withdraw money gives access to much-needed funds at critical stages to address important needs. Investors should use the best ULIP plans to smartly plan their future money requirements.

• Protecting the Child's Future: The ULIPs give the ability to invest in market linked funds to earn better market-type returns, and help create a corpus which can be used to secure the child’ future. The funds can be used towards a child’s education, his or her marriage, etc. Parents can easily keep a check on the ULIP NAV to make sure the returns offered are in keeping with future requirements.

• Financial Security Post Retirement: Equities tend to do well over the long term. Therefore, ULIPs are a good choice to add value to one’s retirement portfolio. To have sufficient funds post retirement, one should invest in equity oriented funds in their twenties and early thirties. With age, one can gradually shift investments to more conservative debt funds.

ULIPs combine the benefits of insurance and investment in one financial instrument. In any case, they are better than insurance or investment alone. With the protection of a life insurance cover, they also provide the option to earn market linked returns to take care of important goals in life.

They Help Avoid the Everyday Hassle of Managing Stocks 

One can invest in equity based market funds which offer a higher rate of return as compared to debt funds. In addition to higher returns, one does not have to worry about monitoring the stocks every day. The insurance company and its fund managers take care of that. They also bring to the table, expertise in fund management. Policyholders can also easily keep a tab on their portfolio with simple tools such as the ULIP NAV.

Multiple Fund Options to Choose From

ULIPs prove multiple fund options at ones disposal. One can choose the type of fund where the premiums will be invested. These can be fully debt or equity or a combination of the two in varying ratios. Looking the historical returns over the years as well as the ULIP NAV will make it easier to understand which the best ULIP plans are. Depending on one’s risk taking ability, changing life and financial situation, one may choose to switch the fund to best adjust to the new scenario. Equity focused funds are apt for people with higher risk appetite while debt focused funds are more suitable for risk-averse people who want guaranteed returns. 

Transparency

One of the plus points of a ULIP plan is that it is an extremely transparent financial product. Unlike traditional plans where no information is shared with the policyholder, one is provided information about all the charges levied. From the easy to understand ULIP NAV to the historical returns, the numbers help pick the best ULIP plans easily. In addition, one clearly knows where the current account stands. ULIPs.

Liquidity

ULIPs are a fairly liquid investment product. They offer partial withdrawal of money to meet unpredictable events and emergencies. Also, the ULIP NAV of each fund is generally displayed on the website of the insurance company. Checking the ULIP NAV numbers will help to easily align the investment and insurance cover with the overall needs. 

Low Surrender Charges

Surrender charges are charges that one has to pay in case one is surrendering a policy. If one finds oneself in a situation where one is stuck with a plan that is no more suitable, one can bear the surrender charges and rid oneself of such a policy. The surrender charges are unbelievably high in case of traditional plans leaving one with only a small portion of money invested post exit. However, they are reasonable in the case of ULIPs.

Decide Insurance Objectives

One should first decide the insurance objectives and then select a ULIP plan that fulfils them. If one is young, current as well as future family requirements need to be considered because the insurance cover should be adequate if something happens to the insured. Family planning, i.e. the number of children one plans to have is an important consideration. It is imperative to understand that ULIP is a long-term investment product. Therefore, one should be clear about the investment and insurance objectives when putting money in a unit linked insurance plan to get the maximum benefit from the investment.

Decide Investment Goals

Investment goals are extremely important. One should spend sufficient time and think before in deciding these goals. This exercise, if done well, makes the process of choosing ULIPs easy. Investment goals may vary from having a corpus for the higher education requirements of the children after some years to having sizeable funds for the child’s marriage. They may also include having the requisite amount of money for post-retirement needs. Utmost importance should be given to one’s investment goals. Once these goals have been decided, one can look for ULIPs with their benefits which fulfil the goals adequately.

Evaluate Risk Profile and Financial Stability

It is important to appraise one’s own your risk profile and financial stability before choosing a ULIP plan. Younger people who typically have higher risk appetite can go in for plans which are more equity focussed to the extent of 100% equity allocation. Those people for whom financial stability is of prime importance will do well with a plan that primarily invests in debt instruments which provide stability albeit with limited returns.

Understand Different Charges Levied

While choosing a ULIP plan from the best ULIP plans available, understand the charges well. These include initial charges, premium allocation fee, fund management fee, surrender charges, mortality charges, and administration and service charges. Proper information and knowledge about charges helps to filter and choose the right ULIP plan.

Compare ULIPs

Every ULIP has its own set of features and benefits. A thorough comparison is must to choose one that is best for one’s individual requirements. The comparison can be done in the traditional offline way or online using one of the many online insurance comparison portals. The websites rank and compare plans of different insurance companies on parameters such as sum assured value, policy term, different charges and bring to the fore, the many differences in ULIP plans.

Be Well-Versed with the Features and Benefits of ULIP Plans

Every ULIP plan is different. Each plan has distinct features and benefits. Having a proper understanding of the pros and cons of each plan makes the decision to choose a unit linked insurance plan easy. One is able to find a better fit based on personal requirements if the characteristics are understood well.

Check the Performance of the Plan

Finding out the performance of a ULIP plan under consideration is a good idea. One can refer to the performance of last three to four years. It gives a fair idea about returns that one can expect from the plan. The returns should also be compared to benchmark indices like the Nifty of the NSE and the Sensex of the BSE.

Aviva Life Insurance Company India Limited

• Aviva i-Growth: This unit linked, non-participating savings oriented life insurance plan offers a choice of three investment fund options and 3 policy terms. The total charge on the policy can be as low as 1% and the insured has the option to redirect premiums to different funds up to two times in a policy year.

• Aviva Live Smart Plan: It is a non-traditional, unit linked endowment plan offering a choice of 7 fund options – Growth Fund, Enhancer Fund, Bond Fund, PSU Fund, Infrastructure Fund, Protector Fund and Balanced Fund which cater to every category of investor. The plan allows four partial withdrawals after completing 5 years of policy.

Bajaj Allianz Life Insurance Company Limited

• Bajaj Allianz Principal Gain: This is an individual, unit-linked non-participating endowment plan that offers the option of limited as well as a regular premium payment. Additionally, Bajaj Allianz Principal Gain plan offers guaranteed loyalty additions at maturity and allows you to receive maturity benefit in instalments via the settlement option.

• Bajaj Allianz Fortune Gain: This non-participating, individual, single premium unit linked endowment plan offers 99.5% premium allocation for a single premium of Rs. 10 lakh and above. The systematic switching option helps manage investments better. It allows loyalty additions of 3% of the single premium depending on the single premium amount and chosen policy term.

• Bajaj Allianz Future Gain: It is a unit linked endowment plan that provides maximum premium allocation. There is a choice of two investment portfolio strategies, viz. the Investor Selectable Portfolio Strategy and Wheel of Life Portfolio Strategy. The plan offers seven funds to choose from for the investor.

DHFL Pramerica Life Insurance Company Limited

• DHFL Pramerica Smart Wealth Plus: This non-participating unit linked insurance plan rewards policyholders with Persistency Units for continuing their policy. These are equivalent to 1% of the average fund value. The minimum age to avail the policy is 8 years and the maximum age at the time of entry is 55 years. 75 years is the maximum age at maturity.

Edelweiss Tokio Life Insurance

• Edelweiss Tokio Wealth Accumulation: It is a non-participating unit linked insurance plan offering customised solutions to meet the wealth accumulation requirements of policyholders. It has a simple charge structure and offers policyholders a choice of multiple fund options to grow their investments. The plan also provides easy access to funds to the policyholders by way of loans and partial withdrawals.

• Edelweiss Tokio Wealth Enhancement Ace: This non-participating unit linked life insurance plan comes with low allocation charges and flexible payment options. In case of death, the nominee of the policyholder receives the higher of the fund value or sum assured amount or 105% of the total premiums paid.

Exide Life Insurance Company Limited

• Exide Life Prospering Life Plus: This is a unit linked life insurance plan can be taken for 10, 15 or 20 years. After 5 years of the policy being active, one can make partial withdrawals to address any liquidity requirements that may arise. This policy can be surrendered any time before maturity, even within the initial 5 year lock-in period.

• Exide Life Smart Future Insurance Plan: This unit linked plan offers a choice of six different funds to invest. The policy tenure can range from 15 years to 30 years. It offers two premium payment choices – limited paying term or regular paying term. There is a limit on the minimum premium paid but is no upper limit. Premiums can be paid at monthly, quarterly, half-yearly or annual intervals.

Future Generali India Life Insurance Company Limited

• Future Generali Pramukh Nivesh: This is a single premium unit linked insurance plan i.e. it is available with a one-time lump sum premium payment option only. With an option of six different funds, one can choose to invest in a fund that matched one’s risk appetite. While the minimum premium amount stands at Rs. 50,000, there is no limit on the maximum premium.

HDFC Standard Life Insurance Company

• HDFC Life Click2Invest ULIP: The highlight of this online unit linked insurance plan is that it comes with zero policy allocation and zero policy administration charges. It gives a choice of as high as eight fund options to invest money in as per one’s risk taking capability. The plan allows four free switches every year. Partial withdrawals are also allowed after 5 years of taking the policy.

IndiaFirst Life Insurance 

• IndiaFirst Smart Save Plan: It is a unit-linked insurance plan which offers a choice of five investment fund options. The plan allows switching to the extent of 24 free switches every year (2 free per month) with a minimum amount of Rs. 5,000. Single, limited and regular payment options are available while payment modes range from single, yearly and half-yearly.

Kotak Mahindra Old Mutual Life Insurance Limited

• Kotak Ace Investment Plan: This unit-linked plan is investment oriented and offers a choice of seven distinct fund options. The frequency of premium can be paid monthly, quarterly, half-yearly or annual. There is a choice of five policy terms – 10, 15, 20, 25 or 30 years. Anyone from 0 to 60 years can avail this plan. However, the policyholder should be of age between 18 and 75 years.

• Kotak Wealth Insurance: This unit linked insurance plan provides you with the alternative to use surplus funds in the form of top-up premiums, thereby providing higher additional payout at death or maturity. There is a choice of 5 policy terms – 10, 15, 20, 25 or 30 years. While the policyholder should be between 18 years and 65 years of age, the age of the life insured can be anywhere from 0 years to 65 years. Partial withdrawals are allowed after completing 5 policy years.

Max Life insurance Company Limited

• Max Life Fast Track Super Plan: This non-participating unit linked endowment plan offers 5 funds to investors with ranging risk appetites. The option of Systematic Fund Transfer and Dynamic Fund Allocation mechanisms help protect investments against market volatility. It gives flexibility to customers in choosing premium payment term and the policy term.

PNB MetLife India Insurance Company Limited

• PNB MetLife Dhan Samriddhi: This plan offers a choice of choose from 6 fund options and allows 4 free switches. Partial withdrawals are allowed to the extent of 12 free withdrawals post which each withdrawal is charged Rs. 250. Funds can be withdrawn and policy surrendered anytime after completion of 5 years.

• PNB MetLife Easy Super: It is a non-participating unit linked endowment plan offering sum assured to the extent of 10 times the chosen annualised premium amount. This plan is available for a period of 15-20 years and the premium-paying terms require customers to pay policy premiums for the entire length of the policy.

• PNB MetLife Smart One: This is a non-participating unit linked endowment plan is available for a period of 10-20 years, subject to the policyholder’s maximum maturity age. Premiums are to be paid once and range from a minimum of Rs. 18,000 to a maximum of Rs. 5 lakh. The sum assured amount is 5 times the single premium paid during the first policy year plus 1.25 times the single premium paid for the remaining policy years.

• PNB MetLife Smart Platinum: The unit linked insurance plan offers customers six different fund options to choose from. Premium can either be paid monthly, quarterly, half-yearly or yearly. The minimum premium amount is Rs. 30,000 under the annual premium payment mode while it is Rs. 60,000 per year for all other payment modes.

Reliance Life Insurance Company Limited

• Reliance Classic Plan II: This is a non-participating unit linked endowment plan with minimum annualised premium for single pay of Rs. 75,000 and Rs. 15,000 under regular pay. The minimum and maximum age at entry is 7 years and 60 years respectively. The minimum and maximum age at maturity is 22 years and 75 years.

• Reliance Pay Five Plan:Every major component of this non-participating unit linked endowment plan has something to do with the number ‘5’. This plan offers a choice of 5 investment funds. One can start building a sizeable corpus with payment of just 5 yearly premiums, are also avail tax benefits. The premium paying term is 5 years and one can opt for partial withdrawals after the completion of 5 years of policy or after attaining 18 years of age, whichever is later.